Oct 20, 2020

Stitch Fix is betting you’ll buy clothes its way

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The secret sauce is a combination of algorithms and human stylists, says CEO Katrina Lake.

Fashion has changed since the COVID-19 outbreak began in that there is none. OK, I’m exaggerating a little bit, but what we’re wearing has changed a lot. One company that knows exactly how much is Stitch Fix. It learns your style through a mix of online quizzes and algorithms, and hires stylists who choose clothes specifically for you. You get a box of personalized items — one at a time or as a subscription — keep what you want and send back the rest.  

Behind the scenes, the company’s tech predicts what you and people like you might like, so it’s always updating inventory and its in-house brands. But what happens to a clothing company, even a super techie one, in a pandemic? I spoke with Katrina Lake, the founder and CEO of Stitch Fix. The following is an edited transcript of our conversation.

Headshot of Stitch Fix founder and CEO Katrina Lake.
Katrina Lake (Photo courtesy of Stitch Fix)

Katrina Lake: We’ve been able to meet the client where she is or where he is because our business model is predicated on this notion of personalization. And while we haven’t seen these big macro disruptions all that often, we see it on the micro level all the time. We see people who are switching jobs and now they’re in a more casual workplace. So those types of micro trends that we have been able to meet the client where he or she is for years and years, that same muscle helped us in the last six months as we’ve seen this massive trend towards casualization and, frankly, people buying less clothes but more thoughtfully buying clothes that are really what they need in that exact moment.

Molly Wood: How would it help you overcome something like supply chain lag, which we saw so many businesses suffer from?

Pandemic has accelerated trends

Lake: Our business model has always been: We put things out in the world, we can know within a matter of weeks [if] this color is working better than that one [or] this size, we should only make this in these sizes and not those. That flexibility was already a capability that we were building with our vendors where we needed them to be flexible, because we had such great data so that we could evolve our buyers. So that was a muscle we already had created with our vendors. As we think about big, macro shifts, something like the casualization of the workplace trend, we actually already were working on that. We already knew that the workplace was becoming more casual, so we pulled up a lot of volume, and it happened faster than we anticipated. But I think this pandemic really has accelerated trends that were already happening.

Wood: What does the data tell you about what might be coming?

Lake: I think right now what we’re seeing is some of these changes are going to be permanent. The data is showing us that, first of all, people are going to be buying apparel online in much, much greater proportions than they were historically. So right now, people are buying less clothes, people are going on fewer vacations, people have less weddings to go to, all the reasons people are buying less clothes at this very moment. And even as the market is shrinking, we are growing in the face of that. We are taking share in that world. At some point, some of those categories will come back up, people will start going back out, going to dinners, going on vacations. We do think some of that market will come back up.

I do think that some of the desire to be more thoughtful in what people buy, I think that’s permanent. I mean, we are all living with our things right now, and I think we are all realizing that there are things in our closet that we bought just because it was 80% off, or that we bought for just one occasion and it was super cheap and now we feel weird about it being in our closet. So I do think people are going to be more thoughtfully buying probably fewer things that mean more in their lives, and I think that’s a good trend for us.

Casualization of the workplace

I think the casualization of the workplace is a permanent trend. That’s one that’s been happening for years and years. If we imagine a world in which more people are working from home, and people have more flexibility, we’re going to be asking our clothes to be serving more of a multipurpose, like, “I want something that I can wear on Zoom, and then work out, and then come back to work and be on Zoom again.” I think that casualization of the workplace trend will certainly continue.

Wood: You mentioned that people may buy fewer things that have more meaning to them. How is that good for you?

Lake: Oh, that’s great for us. Our business has always been about, “We want to be your partner and helping you find things that you love.” If people are less likely to be buying things just because it’s on a steep discount or buying something to wear it once, even though it doesn’t fit perfectly, this is actually how we win, when people are really looking for the one thing that fits for the one thing they’re going to really love. And that’s where I think our capabilities around personalization are really showcased. I think if people are much more focused on things like, “I’m going to buy not as many things, but I really want to love them,” that is great for us.

Wood: How, if at all, have you developed new technology or tweaked your existing recommendation technology during the pandemic?

Lake: Our core business has really been this fixed model where clients let us know what they’re looking for and we send them items to try on in the comfort of their own home. And of course, that model is very resonant today. But we also have introduced direct buy in ways that people can engage with our recommendations in new ways. Now people can actually use their app to be able to buy things directly from us, from our recommendations, and that helps as people have more sporadic needs than they used to. We’ve really thought about how we capitalize on this moment when people are really thinking about new ways to do things and we be as relevant as we can.

Wood: Your chief operating officer said on your most recent earnings call that the company plans to automate more to improve efficiency. Can you give me some details about how that’ll work?

Secret sauce: stylists and algorithms

Lake: We still have a lot of low-hanging fruit in our operations. This has been a business that grew to be $1.7 billion in just about 10 years, and we built a lot of things quickly. There’s simple things; as examples, we can make our warehouses more dense by having multiple layers of how we store things. That’s a simple example of if we can actually build more vertically in our warehouses, we can make our warehouses more efficient. We also have been starting to use robots to help our operations associates to be able to do their jobs more efficiently, so that’s a capital investment that we’ve been making in our warehouses. I think there’s still a fair amount of low-hanging fruit in terms of making sure that our warehouses can be as efficient and that we’re using as much technology to make our warehouse associates’ jobs as good as we can.

Wood: But you’re not necessarily talking about algorithms that fully replace actual human stylists?

Lake: No, that’s not actually what we’re referring to there. I mean, our algorithms can continue to be better and better, but our stylists are such a valuable and differentiating part of our business. I think we really believe that we can continue to invest in algorithms to help our stylist to be better and to help make our stylists’ jobs better and more effective and easier. But I think that combination is such a secret sauce of ours.

tktk
(Photo courtesy of Stitch Fix)

Related links: More insight from Molly Wood

Stitch Fix did have a couple of bad quarters while no one was buying much of anything, but its stock went up more than 12% in September, partly because of the direct buy change that Katrina Lake mentioned, where instead of a box of clothes selected for you, the app shows you individual items you can buy. And if you’re already a customer, it shows items in your size that match things you’ve already bought. Sales of women’s casual clothing in particular were up 350% last quarter compared to last year. 

Amazon has noticed and has a personal shopper service as part of Prime Wardrobe. At the end of September, the company expanded the service to include men’s clothing. Interestingly, analysts told Business Insider that Stitch Fix would probably still have an advantage because of its predictive technology. Amazon said that “hundreds of thousands” of people are using the personal shopper service it launched in July 2019.

If you want to geek out a little on using AI for fashion forecasting, Forbes talked to Stitch Fix’s chief algorithm officer. It seems like vacation and wedding clothes are not big sellers right now — I didn’t need a machine to tell me that — while women are buying lots of house dresses and men are buying golf clothes. I feel like this is on the verge of telling me something that I might get mad about so I’m just going to move on.

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The team

Molly Wood Host
Michael Lipkin Senior Producer
Stephanie Hughes Producer
Jesus Alvarado Assistant Producer